Texas’s Free Markets Light the Way to Clean Energy

(Editor’s Note: TAC is cohosting a discussion on this topic with the Texas Clean Energy Coalition and the R Street Institute in Washington tomorrow. You can find more information on the event here[1].)

“Trump Digs Coal” became one of the most recognizable slogans of the 2016 U.S. presidential campaign, and candidate Donald Trump’s promise to bring back coal jobs struck a chord in Midwestern mining states. It was this vision of an unfettered, resurgent U.S. coal industry that resonated with working class voters, and helped tilt the electoral map Trump’s way on election night.

Yet even as the Trump administration followed through on its promises to scuttle Barack Obama’s controversial Clean Power Plan, withdraw from the Paris Climate Agreement, and abolish other environmental regulations, the coal industry continues to struggle against strong economic headwinds, primarily free market competition from sustained natural gas prices under $4 per million British thermal units (MMBtu).

As price competition from natural gas and renewables continues to depress U.S. demand for coal, policy discussions in Washington, D.C. and in Appalachian coal country have moved beyond loosening environmental controls and into more direct forms of economic intervention.

They should instead be looking to Texas, where a deregulated electric market has highlighted the benefits of a market-based approach.

Under conservative leadership from former governors George W. Bush and Rick Perry, starting in the late 1990s, Texas moved to deregulate its electric market. It also pursued other forward-looking initiatives, such as creating one of the first Renewable Portfolio Standards and investing $7 billion in the Competitive Renewable Energy Zones (CREZ) for new transmission lines to bring renewable power to Texas cities.

ERCOT, the Electric Reliability Council of Texas, operates the state electric grid and manages the deregulated market for 90 percent of its electric load.

TCEC’s Brattle research found that if natural gas prices remain below $4 per MMBtu (as of early March 2018, natural gas futures are mostly at or below $3 per MMBtu for the next decade), carbon emissions will be on track to decline so much that the Clean Power Plan guidelines will have been irrelevant for ERCOT. And wholesale electricity prices will remain virtually flat in real dollar terms.

Further research has shown that coal plant retirements are unlikely to impact ERCOT’s reliability, and the CREZ transmission lines have enough capacity to bring up to 11 GW of new solar power from West Texas to Texas cities.

Recent experience in Texas has borne out these predictions. In October 2017, power generator Luminant announced that they would retire three coal-powered plants in Texas due to “economic challenges” from renewables and natural gas. Despite the retirement of two of Luminant’s coal plants in early 2018, a January cold snap that saw record electric demand on the ERCOT grid did not cause blackouts or other reliability problems for Texans.

Wall Street analysts agree that long-term economic forces are working against any federal effort to bail out the U.S. coal industry. They identify the advanced age and inefficiency of many coal-fired power plants; long-term regulatory uncertainty that discourages investment in new coal plants; and, most importantly, sustained price competition from cheap natural gas, as the major economic factors that make a U.S. coal renaissance highly unlikely.

Ill-conceived policies like coal subsidies or taxpayer bailouts for coal plants would distort the U.S. energy market, delaying or derailing the potential for a Texas-style market-driven transition to clean energy.

Texas is a model of how free energy markets allow cheaper, cleaner power to thrive. Asking taxpayers to bear the burden of propping up a coal industry whose product cannot compete in the open energy market is a violation of free market principles and a self-defeating economic policy for our country.

Fiscal conservatives should reject attempts to manipulate the energy markets to prop up older, uneconomical plants that burn coal at the expense of cleaner, cheaper electricity produced from homegrown natural gas, wind, and solar power.

The rightward shift in the national environmental policy landscape places Texas and its market-driven clean energy transition at the forefront of new discussions about environmental regulation and electric markets.

When you combine Texas’s conservative pro-market credentials; its role as a coal consumer and carbon emitter; its market leadership as a producer of clean energy from natural gas, wind, and solar power; and its fondness for market-driven outcomes rather than government programs, they all add up to an opportunity for conservatives to build on Texas’s research-supported message of a market-driven transition to clean energy.

One problem with looking at Texas for workable solutions at a state level. Most states don’t have their very own power grid and can’t unilaterally affect their energy market the way Texas can.

#2 Comment By Kent On March 7, 2018 @ 4:50 pm

Great article. Of course, the devil is in the details. I’d like to understand how Texas’ deregulation efforts have been so successful when they were so atrocious in some other states such as California and Ohio.

#3 Comment By Thaomas On March 8, 2018 @ 10:22 am

There may be an argument for Texas “clean” energy subsidies — the harm caused by the accumulation of CO2 in the atmosphere — but why call the system “free market?”

#4 Comment By Michael Hogan On March 8, 2018 @ 12:03 pm

Responding to Kent…what’s so “atrocious” about how the PJM competitive wholesale market – the market in which Ohio sits – has worked? Prices are lower than they would have been without competition, reliability is as strong as it’s ever been and well above the standard set by the North American Electric Reliability Corporation. The only identifiable “atrocious” issues have been the result of repeated attempts to distort the market by the Ohio legislature, with the consent of the PUC, to protect uneconomic assets of incumbent utilities, most notably First Energy. First Energy has promoted the idea that competition has been a disaster, when in fact the only effect of competition has been to expose just how poorly run a company First Energy actually is and has been for decades. As for California, there has never really been a competitive market established in California. It’s deregulated in name only.

#5 Comment By I Don’t Matter On March 8, 2018 @ 12:16 pm

CA was wrecked by Enron. Once that monstrosity was out, CA market was ok.

#6 Comment By bacon On March 10, 2018 @ 1:19 pm

Texas and California seem like good examples to compare when looking at what works better in areas where their policies differ. They are big enough to produce meaningful data and certainly epitomize opposite ends of the political divide.

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